[Steve_American]

Today, Bill Mitchell demonstrates that raising interest rates increases inflation while crushing the poor. Thereby increasing economic inequality.

Keynesianism claims monetarism is necessary because it doesn't favor "vested interest," like the political process will when they are using fiscal policies to reduce inflation. But, monetarism does favor vested interest, i.e. the rich.

Monetary policy in the hands of the central banker sociopaths is advancing the class interests of the elites, July 5, 2023

https://billmitchell.org/blog/?p=60960

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[Puffer Fish]

"Raising interest rates" is a logical misnomer. What is actually being referred to by that is the act of artificially suppressing interest rates. This is done by issuing more money and loaning that money out (to big banks, which then have more money to lend to borrowers).

According the theory of many economists, there is a trade off between keeping interest rates down and inflation.
That is why the Central Bank ("the Fed") has come under pressure to let interest rates rise, because there are inflation problems.

And it's a vicious circle, because the more inflation that is going on, the more that trying to hold down interest rates contributes to inflation. (Since the Central Bank has to loan money out at an increasingly subsidised interest rate)

[Rich]

I have to say the Liberals did quite a successful job of gas lighting people into believing that there wouldn't be a massive economic price to pay for lockdown. The Liberals utter disregard for even the most basic fiscal responsibility means that the burden of controlling inflation falls on monetary policy. Added to the costs of paying back for lockdown, we have the ramping up of fraudulent-green policies that drive up costs, while often actually leading to an increase in Green House emissions. The flagship policy for fraudulent greenism must be the closing down of Germany's nuclear plants. This is combined with costs of the ridiculous sanctions policies against Russia.

The most ridiculous thing about this is that real interest rates have fallen not risen.

[late]

banker sociopaths are advancing the class interests of the elites

I agree with that, although I wouldn't call them sociopaths.

I'd put the emphasis on income inequality..

[Steve_American]

@Puffer Fish,
AFAIK, you are confused. The Fed doesn't lend dollars to banks to lend to their borrowers.
Instead, the 1913 law that created the Fed licensed the banks to just create dollars whenever they had a customer to lend to.

As for "fiscal responsibility" again you are confused. What needs to be considered by nations that are not in the EU & EZ, is what real resources they have or can get control of. Such nations can buy everything that someone will sell them for their currency. This goes for labor also.
Fiscal responsibility is a holdover from the gold standard. It is no longer valid in economics, because the gold standard is over. OTOH, the EU & EZ nations are sort of on something like the gold standard. They need to be "fiscally responsible".
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[Steve_American]

I have to say the Liberals did quite a successful job of gas lighting people into believing that there wouldn't be a massive economic price to pay for lockdown. The Liberals utter disregard for even the most basic fiscal responsibility means that the burden of controlling inflation falls on monetary policy. Added to the costs of paying back for lockdown, we have the ramping up of fraudulent-green policies that drive up costs, while often actually leading to an increase in Green House emissions. The flagship policy for fraudulent greenism must be the closing down of Germany's nuclear plants. This is combined with costs of the ridiculous sanctions policies against Russia.

The most ridiculous thing about this is that real interest rates have fallen not risen.

With all due respect, I never heard any liberal claim there would be no costs because of the lockdowns. All I heard was that letting covid rip through the population would cost more. At least in lives lost and sick workers disabled for life. Aas well as medical costs/bills someone would have to pay.

Green projects are often a waste of carbon. Germany could keep using its nuclear power plants.

You didn't grok Prof. Mitchell's point, that monetary policy/raising interest rates adds to inflation. At least in the UK. Maybe not in US.

And you don't grok his 2nd point that raising interest rates when wages are not causing the inflation doesn't fight the problem. At least until they are high enough to cause 10% to 15% unemployment, and that crushes those who are unemployed only because the Gov. policy was to make them unemployed. You favor this because you are not going to suffer the unemployment. That is rather heartless, right?

You see the difference when I claim that the proper Gov. policy would have been to crush the billionaires. They were the ones choosing to price gouge, which means higher prices, which means inflation.
. . . I think you would reject that policy becuse it picks winners and losers. Just like causing unemployment picks winners and losers.

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[Steve_American]

I agree with that, although I wouldn't call them sociopaths.

I'd put the emphasis on income inequality..

OK.

Those were Bill's words. They are his title, not mine.
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[Puffer Fish]

@Puffer Fish,
AFAIK, you are confused. The Fed doesn't lend dollars to banks to lend to their borrowers.
Instead, the 1913 law that created the Fed licensed the banks to just create dollars whenever they had a customer to lend to.

I think you are confused. Yes, banks can "create money", but that does not cause inflation, because expansion of that type of money is accompanied by creation of more debt in the economy. (Except in the case of an economic bubble)
When the Fed chooses to expand the money supply, they do indeed lend money to banks.

"Money" can be a problematic word because it can have some different meanings. Money that exists in bank accounts is not the same type of money that is issued by the Central Bank.

[Steve_American]

I think you are confused. Yes, banks can "create money", but that does not cause inflation, because expansion of that type of money is accompanied by creation of more debt in the economy. (Except in the case of an economic bubble)
When the Fed chooses to expand the money supply, they do indeed lend money to banks.

"Money" can be a problematic word because it can have some different meanings. Money that exists in bank accounts is not the same type of money that is issued by the Central Bank.

I'm not aware of an example of the Fed. lending large sums to banks to "increase the money supply." Yes, the Fed lends money to banks overnight so they meet their reserve requirement.

As for banks creating dollars with loans not being inflationary because a debt is also created that offsets the spending now; the theory is asserting that people modify their behavior now because they think new situation X will materialize in the distant future. After the GFC/2008 the EU tried austerity based on this theory. It didn't work the way the economists thought. The IMF has since said that it was wrong to push that theory. I assert that people make decisions based on their situation now and maybe next year, not 10 to 15 years from now.
So, the debt doesn't offset the fiscal stimulation that bank loans are causing. It is just that the "money supply theory of inflation" is nonsense. The very conservative Cato Institute has published a paper that I linked years ago, that asserts that every case of hyperinflation was caused by shortages, and then the money supply was expanded which made it last longer.

Our current inflation was caused by shortages, OPEC, corps price gouging, and the war. By the time the inflation started the Gov. had stopped giving money to the workers. So, the inflation didn't become hyper.

In the same way as the debt created when the US Gov. deficit spends doesn't offset the stimulus effect of that spending. This is why enough deficit spending will end a recession. And, I'm sure too much deficit spending will cause inflation. I just don't think the US Gov. has ever spent enough to cause inflation. Like during covid, the deficit spending in total was less than the lost incomes. At least if we discount money given to billionaires who didn't spend it on.

[Puffer Fish]

I'm not aware of an example of the Fed. lending large sums to banks to "increase the money supply." Yes, the Fed lends money to banks overnight so they meet their reserve requirement.

Then how do you think the Fed "expands the money supply"?

[Steve_American]

Then how do you think the Fed "expands the money supply"?

The US Gov. expands the money supply by deficit spending and having the Fed end up buying the US bonds.

The Fed. with QE didn't lend money to the bands. It bought bonds and other assets from them. When they were US bonds, this was much like a Gov. years ago printing money and spending it into the economy. In some cases, these bonds have been sold back to the public.

Now that I think about it, early in the GFC/2008, the Fed. provided up to 27 trillion dollars for the banks, so they didn't go under. This included European and maybe other foreign banks. These may have been "loans". Most of the $27T was paid back, so they seem like loans of some kind.
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[Potemkin]

The US Gov. expands the money supply by deficit spending and having the Fed end up buying the US bonds.

The Fed. with QE didn't lend money to the bands. It bought bonds and other assets from them. When they were US bonds, this was much like a Gov. years ago printing money and spending it into the economy. In some cases, these bonds have been sold back to the public.

Now that I think about it, early in the GFC/2008, the Fed. provided up to 27 trillion dollars for the banks, so they didn't go under. This included European and maybe other foreign banks. These may have been "loans". Most of the $27T was paid back, so they seem like loans of some kind.
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They were definitely loans, @Steve_American. And yes, they got it all back again. QE was the smart thing to do in the aftermath of 2008, when capitalism almost self-destructed (again).

[Steve_American]

Yesterday, I saw a YouTube video with the MMTer Warren Mossler, about MMT and inflation.

In it he explains that since the Fed has estimated that just 5%age points of the 6% or 7% inflation we had was caused by the stimulus checks, the other 5.5% to 6.5% of the inflation would have happened anyway. That part was caused by the price of oil and gas going up and by the capitalist market doing its job of allocating stuff in short supply into the hands of the better off and not into the hands of the poor.

So, it seems to me that the stimulus checks were more than worth it. Middle class business owners would have suffered far worse if the poor during covid had been made desperate for food, etc. They were taken care of so the food riots didn't happen. So, the middle class don't realize what the alternatives were.

PF, do you disagree, and so believe that the poor should have been forced to fight in the streets for food to feed their kids?
If you have an alternate choice, what is it?
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[Steve_American]

They were definitely loans, @Steve_American. And yes, they got it all back again. QE was the smart thing to do in the aftermath of 2008, when capitalism almost self-destructed (again).

OK.
However, those loans were not made to "increase the money supply." were they?
AFAIK, they were made to keep the banks from going bankrupt.

So, my point above still stands. The Fed doesn't lend banks money to increase the money supply.

MMTers say that QE was supposed to help the banks be able to lend more money, by providing reserves to lend out. MMTers point out that banks can already create dollars to make loans, so that reason was a lie or a stupid mistake about what is true.

So, why do you think the QE was a good thing to have done?
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[Potemkin]

OK.
However, those loans were not made to "increase the money supply." were they?
AFAIK, they were made to keep the banks from going bankrupt.

So, my point above still stands. The Fed doesn't lend banks money to increase the money supply.

MMTers say that QE was supposed to help the banks be able to lend more money, by providing reserves to lend out. MMTers point out that banks can already create dollars to make loans, so that reason was a lie or a stupid mistake about what is true.

So, why do you think the QE was a good thing to have done?
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It prevented the banks from going under. A few did go bankrupt, and almost all of the others would have followed, like dominoes. QE prevented that, by propping up the dominoes. Back in 2008, the world’s financial system was done. It was finished, it was bankrupt, and it was collapsing. Luckily, that collapse was happening slowly enough that governments could step in as the lender of last resort and return liquidity to the system. Without that intervention, from the governments no less which the neoliberals claim to despise so much, capitalism would have self-destructed and the economies of the USA, the UK and the EU, among others, would currently look like the economy of Argentina or Lebanon. Seriously. One good effect of 2008 is that it finally forced the neoliberals and the libertarians into shame-faced silence as they quietly pocketed the government largesse to avoid ending up in the bankruptcy courts, after decades of telling government to “get out the way”. Lol.

[Steve_American]

It prevented the banks from going under. A few did go bankrupt, and almost all of the others would have followed, like dominoes. QE prevented that, by propping up the dominoes. Back in 2008, the world’s financial system was done. It was finished, it was bankrupt, and it was collapsing. Luckily, that collapse was happening slowly enough that governments could step in as the lender of last resort and return liquidity to the system. Without that intervention, from the governments no less which the neoliberals claim to despise so much, capitalism would have self-destructed and the economies of the USA, the UK and the EU, among others, would currently look like the economy of Argentina or Lebanon. Seriously. One good effect of 2008 is that it finally forced the neoliberals and the libertarians into shame-faced silence as they quietly pocketed the government largesse to avoid ending up in the bankruptcy courts, after decades of telling government to “get out the way”. Lol.

Potemkin, you wrote:
"They were definitely loans, @Steve_American. And yes, they [meaning the Fed, right?] got it all back again. QE was the smart thing to do in the aftermath of 2008, when capitalism almost self-destructed (again)."

IIRC, the TARP program was in the form of loans, and QE came later in the form of buying assets like bad mortgages, corps bonds and US bonds. I can be wrong, here.
So, your use of "aftermath" there led me to say what I said. QE continued for a decade.

I agree that saving the banks was good.
However, I strongly disagree with the 3 next policies. These resulted from the Repuds in Congress wanting Obama to fail so they could win in 2010 and 2012.
These policies were =>
. . 1] To not bail out the borrowers and instead let the banks foreclose on their homes.
. . 2] To not do more to bail out the economy when the initial package was clearly seen as too little.
. . 3] To do QE. Like I said, this was buying assets so that the banks would have more dollars to lend, but banks don't need dollars to make loans, they create new dollars with loans. I see this as causing the bubbles in stocks and real estate. QE went on for a decade after 2010.

[Puffer Fish]

QE was the smart thing to do in the aftermath of 2008, when capitalism almost self-destructed (again).

QE was used in the aftermath of 2008 to replace money in bank accounts that did not exist. (money that "disappeared" when everyone realised that the houses were not really worth those prices and the speculation was unsustainable)

This is one of those rare examples of how money created by banks CAN create inflation when there is an economic bubble going on.

When that money disappeared, some economic policymakers believed that particular money had to be replaced by issuance of new money, to prevent deflation of prices in the economy.

Not all economists agreed that QE was the correct policy to do, of course. Some think the economy would have been better off with bank failures, investors taking the losses, and housing prices being allowed to go down.

[Steve_American]

QE was used in the aftermath of 2008 to replace money in bank accounts that did not exist. (money that "disappeared" when everyone realised that the houses were not really worth those prices and the speculation was unsustainable)

This is one of those rare examples of how money created by banks CAN create inflation when there is an economic bubble going on.

When that money disappeared, some economic policymakers believed that particular money had to be replaced by issuance of new money, to prevent deflation of prices in the economy.

Not all economists agreed that QE was the correct policy to do, of course. Some think the economy would have been better off with bank failures, investors taking the losses, and housing prices being allowed to go down.

PF, you assert that QE was to replace money in bank accounts that did not exist.

How do bank accounts disappear? Mostly when a bank fails another bank buys it. And the FDIC covers most losses that do occur.

I have never heard about trillions being lost when banks fail.

I know that trillions in people's minds can be lost when stock prices or housing prices fall, but this was not your assertion.

So, please explain how it happened.
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[Puffer Fish]

PF, you assert that QE was to replace money in bank accounts that did not exist.

How do bank accounts disappear? Mostly when a bank fails another bank buys it. And the FDIC covers most losses that do occur.

Money in bank accounts disappear when those loans go bad. When it becomes obvious that the entity that borrowed the money is not going to pay it back and the current worth of the collateral the bank has a hold on is worth less than the amount of money they are owed.

FDIC only covers a certain amount of losses, and even if the FDIC pays for it, that money still has to come from somewhere and it is ultimately going to remove "money" from the economy as a whole.

As I said, this usually only becomes a problem during a large bubble in the economy, such as the 2007 Housing Crisis.
People thought that houses were going to continue selling for higher prices, when in reality that was unsustainable.

[Puffer Fish]

[size=130]Today, Bill Mitchell demonstrates that raising interest rates increases inflation while crushing the poor. Thereby increasing economic inequality.

Why do you think "raising" interest rates would increase inflation? Please make some basic effort to explain to us how that might work.

Most economists assume the opposite.

According to mainstream economic theory, allowing interest rates to rise will stop creating inflationary pressures, whereas trying to continue to hold them down will only throw more wood on the inflationary fire.